Tax Law Center Blog

Yesterday the IRS stated that taxpayers’ eligibility to participate in the OVDP could be terminated if the foreign institution where you have your account faces IRS action. Once the U.S. government has taken action against a financial institution, any U.S. taxpayers with accounts at that institution cannot participate in the OVDP. Previously, the IRS’ stated policy was that once a taxpayer was contacted by the government (or otherwise investigated or under criminal/civil audit) they were no longer eligible for OVDP.

For example, HSBC India, which provided numerous U.S. accountholders names, was under investigation earlier this year. We believe that many other banks are also under investigation. For accountholders on the HSBC list, which was provided to the IRS earlier this year, this is a major change: they will likely be ineligible to participate in OVDP.  Previously, our law firm counseled HSBC customers to enter the OVDP program as soon as possible.

The new IRS action reflects a basic concept of voluntary disclosure: The IRS wants you to come forward before you have to (not afterwards).

It is likely that the U.S. will require foreign financial institutions doing business in the United States to disclose account holders having relatively small accounts and earnings. There have been unconfirmed rumors of discussions regarding accounts having a high balance of the equivalent of $50,000 at any time between 2003 and 2011.  U.S. persons having interests in foreign financial accounts should not find comfort in a belief that their foreign financial institution will somehow refrain from disclosing very small accounts in the current enforcement environment. Those who procrastinate may be surprised at the high level of cooperation of their institution with the U.S. government.

Taxpayers with accounts with multiple financial institutions now have significantly increased risk of OVDP ineligibility. In light of the new announcement, such taxpayers are encouraged to seriously explore the OVDP program to avoid criminal prosecutions and civil audit examinations.

Therefore, time is running out for taxpayers to enter the OVDP (also there is no stated deadline) because of the IRS’ continuing investigation of foreign banks.

Our law firm expects unabated aggressive enforcement of the US tax laws, including FATCA with increased criminal prosecutions and civil audit examinations. We have been advising our clients to expect the unexpected (and the worst) in their tax treatment and disclosure of offshore assets. Taxpayers, who have not done so already, should explore the OVDP program to avoid criminal prosecutions and civil audit examinations.

Patel Law Offices is a law firm dedicated to helping clients resolve complicated tax, criminal tax, and international tax problems. Our firm assists (and defends) clients and their advisors to legally disclose (and legitimize) foreign accounts.